Abstract
Family firms and business groups play an important role in many emerging economies. In this paper we study how different aspects of family involvement influence technological innovation in a firm. Arguments drawn from agency theory and particularly the principal-principal agency hypothesize a negative influence of family involvement with respect to technological innovation. In contrast, stewardship theory predicts a positive influence of family involvement on technological innovation. Drawing on these theoretical lenses with contrasting directionalities with regard to the impact of family involvement on technological innovation, we study how family involvement in ownership, management and board of directors, and business group affiliation influence R&D investments and patents obtained by the firm. The hypotheses are empirically tested on a seven-year panel of 172 firms from the pharmaceutical industry in India. Our results indicate that family shareholding and family control over both CEO and chairperson positions have a positive and significant influence on the firm’s R&D investments, broadly lending support to stewardship theory. We also find a positive influence of business group affiliation on R&D investments and patents applied by the firm. Our conjecture is that the high technology opportunity environment in the Indian pharmaceutical industry facilitates stewardship behavior which in turn promotes innovation in these firms.
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Notes
David et al. (2008) classified debt contracts into two types: transactional debt that has simple performance attributes and a fixed time period, whereas relational debt tends to have an extended duration and more complex performance attributes.
http://www.pharmaceutical-drug-manufacturers.com/pharmaceutical-industry/ (accessed Dec. 11, 2011).
www.nstmis-dst.org/PDF/FINALRnDStatisticsataGlance2011121.pdf (accessed Dec. 26, 2013).
http://www.ipindia.nic.in/ipirs1/patentsearch.htm (accessed Dec. 26, 2013).
http://www.bseindia.com/ (accessed Sep. 9, 2014).
PCT makes it easier for companies to file patents in many countries simultaneously. Under this treaty, patent applications are first filed in a national contracting office, where search for prior art is performed and results are reported. However, patents cannot be given through PCT; hence companies have to subsequently file for patents individually at different national and regional offices. International patent application through PCT reduces considerable cost and time in repetitive search and preliminary examination at different national and regional patent offices (http://www.wipo.int/pct/en/treaty/about.html, accessed Sep. 9, 2014).
“Failures and doubting investors have not dissuaded Glenmark Pharma’s Glenn Saldanha” http://articles.economictimes.indiatimes.com/2011-05-22/news/29571304_1_biologics-research-targets-poker (accessed Sep. 9, 2014).
According to Cappelli et al. (2010), “The India Way” of management had its foundations in the 1991 economic reforms in India. The authors noted some of the following behavior common among many of the Indian firms. Indian firms built a culture of family among the workforce; taking care of the employees and their families, and providing empowerment and resources to carry out their responsibilities (Cappelli et al., 2010: 50). This was reciprocated by employees, through higher level of commitment and trust in the organization. The executives offered employees a long term vision—like that of reaching customers with new products or services, or lifting large sections out of poverty—rather than focusing on higher financial growth that is seen in some Western firms (Cappelli et al., 2010: 96). Indian firms were also found to be much more open to failures. Managers focused on developing creativity and entrepreneur behavior in organizations and were comfortable with failure of projects and provided some leeway for errors and learning in decision making (Cappelli et al., 2010: 125).
We thank an anonymous reviewer for these inputs.
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Acknowledgments
A prior version of this paper was presented at the 2012 Academy of Management Conference in Boston. We thank the reviewers and the participants of the conference for their helpful comments and suggestions. We also thank the facilitators of the Paper Development Workshop organized by the BPS division during the 2012 Academy of Management Conference, in particular Naga Lakshmi Damaraju for her comments and suggestions on the paper. We also thank Deepak K. Sinha for his valuable comments. Finally, we thank the anonymous reviewers and the editors of the Asia Pacific Journal of Management for their several useful suggestions and comments which have greatly helped in the development of this paper.
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Ashwin, A.S., Krishnan, R.T. & George, R. Family firms in India: family involvement, innovation and agency and stewardship behaviors. Asia Pac J Manag 32, 869–900 (2015). https://doi.org/10.1007/s10490-015-9440-1
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DOI: https://doi.org/10.1007/s10490-015-9440-1